Pay Discrimination Case Could Expose Firms to Big Liabilities

Only one of the 29 cases on the U.S. Supreme Court 2006-2007 docket so far involves a labor law issue, but depending on how the court rules, it could wind up substantially costing employers.

The justices have agreed to hear a pay discrimination dispute that could put companies on the hook for salary decisions made over the course of a generation. In a suit against the Goodyear Tire & Rubber Co., Lilly Ledbetter, a floor manager supervising tire production at a plant in Gadsden, Alabama, alleges that the company paid her and her female colleagues less than it paid men.

She filed a sex discrimination charge with the Equal Employment Opportunity Commission in March 1998. She took early retirement and sued Goodyear in November 1999. The statute of limitations under Title VII is 180 days.

For Ledbetter, that means the last instance of discrimination would have occurred within 180 days of the paycheck at the heart of the allegation. A trial court, however, allowed Ledbetter to present evidence of discrimination going back to 1979, eventually resulting in a $3.5 million award against Goodyear.

But the U.S. Court of Appeals for the 11th Circuit in Atlanta ruled in August 2005 that Ledbetter could only go back to her last regular salary review to allege bias. If the Supreme Court affirms the trial court’s position, companies could face huge liabilities.

“It significantly raises the stakes in pay discrimination cases because potential damages go through the roof,” says Glenn Patton, a partner in the labor and employment practice of Alston & Bird in Atlanta.

It would be especially difficult for an employer to respond to a pay discrimination action that spans decades because of the obstacles related to gathering evidence, Patton says.

Unlike hiring and promotion decisions, which often hinge on the evaluation of specific job criteria and the candidate’s background, raises tend to be distributed in a more intuitive way. The difference between a 3 percent raise and a 5 percent increase may be based on a manager’s gut feeling about performance.

When those decisions are made for hundreds of employees every year, the precise reasoning for each one may fade. In fact, over many years, the employee could have several managers and the company’s executive leadership could turn over many times, says Roy Englert, a Washington, D.C., lawyer.

“It’s almost an impossibility of proof,” Patton adds. “Compensation is not some­thing that is widely known or discussed in a workforce.”

That kind of secrecy is also an obstacle for plaintiffs, who might find it difficult to prove a pay discrimination case within the 180-day window because there can be so little concrete evidence.

Yet a company may find itself having to justify hundreds of pay decisions. “It’s almost never-ending,” says Shane Brennan, labor and employment counsel at the National Chamber Litigation Center. “What is the point of having a statute of limitations if there is no closure at all?”

Lifting time limits would mean the alleged sins of a previous management team, or single former manager, may be borne by a company that is not committing discrimination.

“What is the most conscientious employer to do if an employee can come in after the fact?” Englert says.

–Mark Schoeff Jr.